By on January 22, 2010

Optimism is a rare commodity in the auto industry these days, and nearly all of it comes from the so-called BRIC nations of Brazil, India, China and (to a lesser extent) Russia. India in particular is being targeted as one of the few growth opportunities for the industry’s global players. Nissan/Renault, Volkswagen, Honda, Ford and GM have all recently announced major initiatives to target growth in India’s entry-level market, and GM even gave up control of its Chinese operations in order to beef up its Indian presence. But, as the Hindu Business Line reports, India could be staring down the kind of overcapacity that is causing so many headaches for automakers in mature markets.

The HBL quotes an anonymous Fitch Ratings industry analyst as saying:

As new capacity gets added by 2012, we’re anticipating a demand and supply mismatch in the short-term. Demand is only expected to grow by 10-12 per cent every year. In 2009, the domestic auto industry was utilising 80-85 per cent of its capacity, but this may drop to 65 per cent by 2012. India may be in a similar position in 2012 as the global auto industry is in right now. The global capacity utilisation in 2009 was around 65 per cent, down from 80 per cent in 2008

According to the analyst, automakers with a presence in India are expected to add 0.9 million units to the 2.6 million units capacity of the passenger vehicle segment and 0.6 million units to the 0.75 million units capacity of the commercial vehicle segment by 2012. In the passenger car segment this translates into a nearly 35 percent increase in passenger car capacity and an 80 percent increase in the Light Commercial Vehicle (LCV) segment. And, according to Fitch:

We can expect a significantly high growth of around 20 per cent in the compact car segment, while the LCV market which is currently dominated by Tata Ace, should see around a 10 per cent growth. If you look at a global level, most production capacity is being added in India and China, elsewhere it is excess capacity

Ruh-Roh! This capacity will probably be soaked up eventually by long-term growth in the Indian market, but a big part of the appeal of BRIC markets is in their short-term growth potential while mature markets are mired in economic downturn. By 2012, mature markets should be experiencing a rebound. If India is experiencing overcapacity by then, the recent goldrush approach to the Indian market could well be stood on its head. For firms like GM that are making tangible compromises for advantages in the Indian market, this possibility should be especially worrying.

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3 Comments on “In The Midst Of An Auto Goldrush, Is India Headed For Overcapacity?...”

  • avatar


    Makes ya wish for a HOV lane?


  • avatar

    I’ve said this before, the expansion of the Indian Middle Class and their lust for cars will force the government to finally build an infrastructure for them. You know, sans the cronyism and budget skimming so commonplace right now. I can see it: better roads, bridges, stop lights, etc.

    If they don’t…then overcapacity will be even more of a concern.

  • avatar

    From what I have read, India is not building enough roads to soak up this dramatic increase in production – even if one takes into account the current highway construction boom.
    Furthermore, in its cities, there simply is no space to build. Having traveled in Bombay (Mumbai), Bangalore and Delhi, I can say that traffic congestion in these places is hell. It is pretty much rush hour from 8am to 8pm. Bangalore in particular is really, really bad. It makes LA feel like an open prairie! I really don’t know what the solution to city congestion is going to be.

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